India cuts LPG prices for domestic households by 18% to tame inflation

India is cutting LPG prices by 18% for domestic households, government officials said Aug. 29, in an attempt to tame high inflation in Asia's third-largest economy.

A 14.2 kg LPG cylinder in the capital New Delhi will cost Rupees 903 ($10.94) after a price reduction of Rupees 200 ($2.42) per cylinder.

Prime Minister Narendra Modi's cabinet approved the decision to cut retail prices of LPG cylinders on Aug. 29, as the country has been battling food price-led high inflation that hit its highest rate in 15 months in July.

The decision to cut prices will benefit 330 million domestic LPG users, including 97 million low-income families.

The reduced prices will be effective Aug. 30.

"We understand the challenges faced by households in managing their budget," said oil minister Hardeep Singh Puri.

The cabinet also decided to provide new LPG connections to 7.5 million women from low-income households in the current fiscal year to March 2024.

"The reduction in cooking gas prices is aimed at providing direct relief to families and individuals, while also supporting the government's larger goal of ensuring affordable access to essential items," Puri said.

The fuel basket, which includes LPG, carries a weight of nearly 8% in the retail inflation index.

The practical burden of the government's decision to cut LPG prices by Rupees 200 per cylinder has been estimated at around Rupees 76.8 billion ($930 million) in FY2024, information minister Anurag Thakur told a media briefing.

India meets 55% of its LPG demand of 28.5 million mt via imports.

Rising international prices

The move to reduce domestic LPG prices to households came amid rising international LPG prices in recent months.

FOB Middle East propane averaged $554.08/mt over Aug. 1-29 , up from $448.79/mt over July and $426.35/mt over June, while FOB Middle East butane averaged $555.33/mt over Aug. 1-29, up from $437.07/mt over July and $405.55/mt over June, S&P Global Commodity Insights data shows.

The uptrend is due to concerns over spot supply from Saudi Arabia, while demand from North Asia is supported by stock-building efforts by importers ahead of winter, as well as regular bids by several trading companies for spot FOB Middle East cargoes.

Market analysts estimated India's monthly LPG demand to average nearly 90,000 mt in the second quarter, as importers started to build inventory ahead of year-end festivities.

India's LPG imports in July increased 3.26% month on month, but fell 3.8% year on year to 1.363 million mt, as demand rose 7% from June, provisional data from the Petroleum Planning & Analysis Cell showed.

However, demand in July dropped 0.6% year on year to 2.39 million mt. Over the first seven months of 2023, India's LPG imports rose 1.8% year on year to 9.899 million mt as regional LPG prices declined over the period.

Platts, part of S&P Global, assessed FOB Middle East propane at an average of $547.31/mt over January-July, down from $786.35/mt in the year-ago period, while FOB Middle East butane averaged $542.04/mt over the first seven months of this year, down from $790.01/mt year on year.